The Housing Bubble

A reply, “They’re snapping up the inland empire? LOL! They’re welcome to it! I guess it’s less smoggy than Beijing, so it’s all good.”

The problem with CA is it’s all glowing in the dark from the Fukushima nuclear reactor disaster.

I posted this yesterday in the comments:

‘Charles Liu, who moved to California’s Silicon Valley from Beijing last year, recently spent $1.6 million on a single-family home with a lot size totaling 10,000 square feet (930 square meters) nearby San Jose. ‘We saved $400,000 for the down payment and expect to pay off the mortgage in five to 10 years,’ said Liu.’

‘Liu added that competition is stiff among international buyers as fewer homes are for sale in the area’s super-heated real estate market. Martin Lawler, a San Francisco immigration lawyer, told China Daily that many of his Chinese clients are considering buying homes in the US even though they don’t live in the country for the entire year because their businesses are in China.’

‘The purchases are not only Chinese EB-5 investors’ retirement plans but also are a good investment for their children, who may be seeking educational opportunities in the United States, he said.’

From above:

‘The down payment was 30 percent…If she wanted to buy another apartment in China, she wouldn’t be able to get a mortgage, as she took out mortgages for her first two apartments.’

IMO, a lot of these people are up to their eyeballs in debt.

‘Business should be picking up for Zhao Guoping, a Beijing shopkeeper, as Chinese leaders try to build a consumer society to replace a worn-out economic model based on trade and investment. But his financial struggle highlights the hurdles that ambitious effort faces.’

‘Squeezed by higher costs and weak sales to budget-minded shoppers, Zhao said the income from his neighborhood shop has fallen by half to 50,000 yuan ($6,000) a year.’

“Prices are rocketing up. People’s incomes can hardly catch up,” said Zhao, 38. “Daily necessities, yes, I still have to buy them. But anything I don’t necessarily need, then no.”

On this:

‘as Chinese leaders try to build a consumer society to replace a worn-out economic model’

So a bunch of corrupt families that have never worked a day in their lives are going to huddle and reshape a giant economy?

for their children, who may be seeking educational opportunities in the United States, he said.’ ??

Particularly higher education…House in my neighborhood was rented a few years ago…The Chinese family had two high school aged children…Father relocated I believe with Foxcom…He said he is here for four years until the children graduate high school and enter the UC system…

The UC system in California is very difficult to get into…You need strong course resume & SAT…This father is not hoping they go to a UC, he is quite confident they will…Why ?? Because in their culture, education is #1 and is demanded from the children…Sports are allowed but only within the context of school…Afternoon, Evening & Weekend sports programs like baseball or soccer ?? Forget it…That time is set aside for study….Summer is for part time work and extended school programs…

‘The only effect I could see of a Canadian housing bubble popping is people unloading their property here for cash,’ said Diane Brennan’

Over a year ago, I found an article with a UHS bragging that Canadians could HELOC their house and use the cash to buy in Phoenix. This, it was explained, allowed them to use 100% leverage.

Here’s the latest from the Oracles at ASU:

‘Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business, said the supply of homes available for sale is going up and prices of those homes are stabilizing and in some cases, coming down.’

‘Current resale home prices in Phoenix are reasonable, Orr said: neither too low nor high. And compared to the rest of the country, Phoenix is still extremely affordable, he said. “Prices have no reason to go higher from where they are now and in some areas they could come down,” he said.’

‘Supply is a key factor in price. After the economy turned down in 2007, a long period followed of oversupply due to foreclosure and short sale homes on the market which kept prices low, Orr said. In 2012, after the bulk of distressed properties had moved through the system, supply began to drop, bringing prices up. Today the supply of available homes is 16 percent below normal, but is rising rapidly and could surpass the average in a matter of weeks, he said.’

“Right now it’s heading up like a rocket,” Orr said.’

‘Credit growth in China has been outpacing GDP growth since early 2012 — a classic sign that a bubble in borrowing has reached its final stage as lending loses its ability to generate real economic activity.’

‘Years of overbuilding has resulted in in countrywide excess capacity of nearly 40% according to some estimates, as steel mills and mines are idled and lost revenue and fixed expenses pinch profit margins and the ability to service credit obligations.’

‘And the credit that has been generated over the past year has been issued at ever-increasing interest rates — a sign that borrowers, desperate to keep the music playing, are willing to pay whatever is asked.’

‘You can sum it all up like this: In the view of Societe Generale’s China economist Wei Yao, “there is no other ending to China’s massive resource and credit misallocation than a painful bursting of the bubble.” The only question that remains is “when it will start unwinding and at what pace.”

‘Since 1976 the price of residential real estate has gone up by 240 per cent in Metro Vancouver, said Paul Kershaw, a University of B.C. professor, citing Canadian Real Estate Association data. After adjusting for inflation, average housing prices are up by $165,000 in Canada and by $350,000 in B.C., he said.’

‘For owners like his mother, that’s great, he said, but it’s “crushing the dreams” of their kids and grand kids.’

‘Young people today are more likely to go to college or university than previous generations, but over the same period tuition fees have doubled, he said. They’re twice as likely to have degrees, a distinction that comes along with high levels of student debt.’

‘At the same time job prospects have diminished, with many young people working as unpaid interns or in low-pay positions to get established, he said. Compared to 1976, using inflation adjusted Statistics Canada figures, the typical wage for 25 to 34 year olds has dropped by $3 an hour across the country.’

‘The drop in B.C. has been even larger, with a decline of $4 an hour, he said.’

‘A recent personal finance column by Rob Carrick in The Globe and Mail reported on research by Markus Moos, an assistant professor at the University of Waterloo. In 1981, the average income for people between the ages of 25 and 34 was $38,335 in Metro Vancouver, he wrote. By 2006, after adjusting for inflation, that had fallen to $31,844, a drop of 16 per cent.’

‘Some, however, see focusing on the generational divide as a distraction. “I think it’s about class, not generations,” said Bill Hopwood, an organizer of the Raise the Rates Coalition, when I asked him about Kershaw’s message about generational inequality. “It’s not that we’re stealing from the future, it’s that the rich are stealing from all of us.”

‘Forget about off-the-plan apartments. What cashed-up overseas Chinese buyers really want is a house in Australia, and more precisely, the land on which the house sits. For the right house in the right suburb, they are outbidding Australian buyers by $100,000 to $200,000 – and sometimes more – to secure the property. They are importing inflation to their country of choice.’

‘One buyer, who didn’t want to give his name, experienced the competition first-hand recently when he looked to buy a home in Epping, a Northern Sydney suburb. “We saw this house on a Saturday afternoon and when we went to make an offer on the Monday morning, it was already sold - $200,000 more than the asking price ($1 million),” he says.’

‘He subsequently found out that the young Chinese buyer intended to knock it down and spend another $500,000 building a new house on the site. “In Sydney’s leafy mid-north shore suburbs, it is not uncommon to see old houses knocked down and brand new double brick two-storey mansions in their place,” says Goldman, chief executive of Leda Real Estate.’

‘Joseph Ngo, branch manager of LJ Hooker Glen Waverley agent in Melbourne, says it is not unusual for his agency to sell homes in sought-after Melbourne suburbs for $100,000-$200,000 above the expected sale price. “I recently sold a home for $2.3 million - $500,000 over the asking price,” he says. “They pay $1.2-$1.3 million for a house and think nothing of tearing it down. Then build a 60-square (557 square metres) mansion on the land. They are buying the land, not the house,” says Ngo.’

‘John McGrath, chief executive of McGrath Estate Agents, says: “We have seen buyer inquiries from clients of Chinese origin (local and overseas) double in the last 12 months.”

‘NSW experienced 45 per cent growth - the highest in the nation - in foreign investment in residential real estate. In total, FIRB recorded residential sales of $4.2 billion to overseas Chinese buyers in the 2012 financial year - up 70 per cent on the $2.4 billion recorded in 2009-10.’

‘Many of these buyers have friends or relatives in Australia to bid for them. Those without the local connections are still able to purchase - and there have been countless anecdotes of overseas Chinese buyers flying in to inspect and buy Australian properties they found on the internet.’

‘According to the FIRB website, foreigners can buy established properties in Australia if they have valid visas – for example, work or student visas. The rationale is that they need somewhere to live, but must sell when the visa expires. While foreigners are otherwise technically not allowed to buy established homes, a Canberra government source said non-resident foreign persons can buy, but they need to apply for approval to buy established dwellings for redevelopment.’

‘Juwai’s Taylor says China’s economic ascendancy has unleashed unprecedented purchasing power for its citizens, and is now washing up on the shores of Australia, the United States, Europe, South America, and Southeast Asia. “The true power of the Chinese buyer is represented by more than 63 million people whose wealth and incomes provide them with the ability to purchase international property,” says Taylor, who points out that 90 million Chinese search for property online every month. More than 60 per cent pay in cash.’

‘The mainland Chinese passion for real estate remained unfulfilled in their home market until about 15 years ago, when private ownership was first permitted, according to Taylor. “They are going through their first property cycle. Property is like gold to them.”

‘Lao Tip Seiha, deputy general director of the Construction Department of the Ministry of Land Management, Urban Planning & Construction, said that Cambodia’s increasingly strong economy contributed to the growth of the construction sector.’

“People’s living standards are improving, and housing demand is strong, as an increasing number of investors, along with the tourism industry, contribute to growth of the construction sector,” Lao said.’

‘The majority of foreign investors in Cambodia are South Korean, Chinese, British, Japanese or Thai, according to ministry data.’

‘In 2012, investment growth in the construction sector peaked at 72 per cent, compared to 2011. In other words, growth slowed last year in comparison with 2012. “In terms of growth percentages in 2013, construction-sector investment increased, but declined somewhat in comparison with 2012,” Lao said.’

‘Philippine property development will continue to expand this year despite an expected slowdown in most of Asia, real estate services company CBRE Philippines said Thursday. “The Philippine sector will continue to accelerate in 2014… elsewhere in Asia, markets have slowed down,” said Rick Santos, CBRE Philippines chairman, told reporters at a briefing.’

“No longer is the Philippines an underestimated market, investors now see the sweet spot that is in all property fronts,” he added.’

‘Santos explained that restrictions in real estate investments in China, Singapore, Hong Kong and Malaysia will also result in funds flowing into the Philippines’ high-end residential sector.’

‘The slowdown, increased land prices, rising cost of construction materials have badly affected the realty sector and around 4,000 ready flats across the city are reportedly lying unsold. Kiran Chavan, president, Confederation of Real Estate Developers’ Association of India (Credai), Nashik said, “There are no new real estate projects being launched in the city currently. But the bookings are good in old schemes. The real estate projects with around 5,000 flats are under construction and nearing completion. But the hike in ready reckoner rates may badly affect the growth of the real estate sector.”

‘A source said, “There are around 10 large projects over 20,000 sq m of land with around 3,000 flats altogether under construction, but their constructions have been halted due to lack of environment clearance.’

‘The land prices in Nashik have increased by three to 20 times in different parts of the city in the past six-seven years. The land prices, which were in the range of Rs 1,100 to 15,000 per war (per nine sq ft) in different parts of the city six-seven years ago, have increased to Rs 8,000-Rs 35,000 per war.’

With just a slight rewording, you can rewrite this paragraph so it describes the pre-2007 housing situation in the western U.S.:

“Chinese Californians are buying homes in California Oregon since they are experiencing a bubble in China California. Everybody wants to own a home in California Oregon.”

‘The rental prices of mining and resources-rich parts of Central Queensland are deflating. The most dramatic rental shifts shown by figures from Australian Property Monitors were in Gladstone, Mackay and in the coalfields region of Isaac where the average weekly rent for a house fell by more than $100 in 12 months.’

‘Renting a home in the coalfields near Moranbah cost an average of $600 a week at the end of 2012, it is now closer to $400 a week. In Gladstone, median rents fell 23% from $572 to $440. In Mackay, rents in the past year fell 19.2% from $520 a week to $420 a week.’

‘APM senior economist Dr Andrew Wilson said the fall of rentals in Queensland boom towns was “the hangover after the party” as the resources industry began to cool. “The prices did get a little over-inflated in the mining areas,” he said. “It was inflated by over-investment by non-local investors. We see quite a steep decline in rents over 18 months as (rents) have adjusted backwards.”

‘The housing investment boom that drove up property prices in Mackay and Gladstone is now looming for the Southern Downs and Toowoomba, with property experts warning of a possible bubble. New regional data from Australian Property Monitors shows increasing house prices in Warwick and Toowoomba.’

“The question is whether Toowoomba will move too far ahead,’ APM senior economist Dr Andrew Wilson said. “There is a lot of investor interest in the Toowoomba market because it is the gateway to the Surat Basin,” Dr Wilson said. “It’s perceived now as an investor hotspot - I’m not sure if that’s a great positive given the experience of Gladstone.”

‘The price for a house or unit in Gladstone has tumbled between 8% and 17% in the past year as its market overheated by billions in gas infrastructure now continues to cool.’

‘In the coalfields shire of Isaac, west of Mackay, house prices dropped by almost 22% from $397,000 down to $310,000. These were prices long inflated by the huge demand created by the resources industry, be it gas development in Gladstone or coal mining in Isaac and Mackay.’

‘The now-calming prices of Central Queensland’s mining provinces once drove locals from their home towns as they were increasingly priced out of the market, the effect of a “property bubble”.

Comment by Whac-A-Bubble™
2014-01-31 06:11:13

“You can’t lose money in real estate comapared to currency devaluation.”

Conversely, you can lose your shirt buying overvalued real estate just before a decades-long correction.

‘The Year of the Wooden Horse, which began last Friday, will be bumpy, at least in the first few months, according to a feng shui expert. Geomancer Andy Tan said that in Oriental tradition, the Year of the Wooden Horse has always been viewed as challenging, and this year will be no different.’

“This horse is like a stallion that has not been ridden yet,” he said. “It doesn’t want to be ridden, so the first six months [of this year] will be very volatile.”

‘Tan—who has been practicing feng shui and consulting for major real estate developments for over two decades—said the volatility of the Year of the Wooden Horse would be felt in business and politics, both here and abroad.

“The general attitude will be quite erratic in the first half,” he said, adding that, as early as today, a cursory glance at the business headlines would indicate that a rough ride is coming for businessmen, especially those whose businesses are affected by the gyrations of the financial markets.’

‘Tan pointed out that the beginning of the Chinese Lunar New Year coincided with recent developments in the United States, where the Federal Reserve had decided to slowly reduce the amount of liquidity it pumped into the economy each month. The reduction in liquidity would result in higher interest rates around the world, the expectation of which is already felt through higher volatility in some emerging markets.’

“This will be very, very challenging,” Tan said, explaining that the reduction in the liquidity pumped by the US central bank into the global economy would filter down to the Philippines, likely resulting in the Bangko Sentral ng Pilipinas raising its own interest rates, to the detriment of businesses that rely on loans for their day-to-day operations.’

“This is when the horse will start to buck,” Tan said.’

‘Tan predicted that the businesses that would do well this year were those that are “close to the earth,” given that the current horse year would be ruled by the element of wood.’

“Agriculture would be good, along with construction and real estate,” he said. “There’s no [real estate] bubble, and [even if there is], it will not burst.”

This is getting interesting:

‘Dallas Federal Reserve Bank President Richard Fisher defended the U.S. central bank for charges from overseas that it was recklessly ignoring the impact of tapering on other countries. “Some believe we are the central bank of the world and should conduct policy accordingly. We are the central bank of America,” Fisher said in a speech in Forth Worth, Texas, according to Dow Jones.’

‘On Thursday, Raghuram Rajan, the chief of India’s central bank, said that “international monetary cooperation has broken down.” He added that industrial countries “cannot wash their hands off and say ‘we will do what we need to and you do the adjustment you need to.’ “We will certainly do the adjustment we need to…but they may not like the kind of adjustments we are forced to do down the line,” Rajan said.’

From the comments:

‘I wonder if India decides that other countries are stealing its brain power and asks all its citizens whether working abroad or domestically for foreign companies to quit their jobs and return to India within a month. This will be done to safeguard India’s interest without regard for other countries’ interest. There will be some pain for India in the short-term white most Western countries will cease to function with its lazy population begging for help. I guess that is acceptable too.’

‘I’m sorry, didn’t the USA insist we leave the gold standard and have the us dollar as reserve currency. So didn’t they already set themselves up for that to begin with. Oh that’s right it suited then but don’t now!’

‘Aren’t we all responsible for the ones we have domesticated? This change of heart on part of the Fed is really strange: for decades the Fed spoke and acted like a de-facto Central Bank for the entire world, and in fact appeared happy to assume that position - why this change, and why now, of all times? Are emerging nations becoming a little bit too unruly and the Fed wants them to toe the line?’

Headline:”Latest trend in ultra-high-endpriced homes: foreclosures”

http://www.bizjournals.com/albuquerque/news/2013/12/04/latest-trend-high-end-home-foreclosure.html

“Florida and California have accounted for more than 60 percent of all high-end foreclosure activity this year.”

This is what happens when you borrow money to pay inflated prices for a depreciating asset…… foreclosure and bankruptcy.

‘Norway’s Prime Minister Erna Solberg warned of “insecurity” gripping the nation’s housing market as deflating prices coincide with a rise in the jobless rate in Scandinavia’s richest economy. Norwegian house prices have dropped 5 percent since August as the market retreats from a half-decade-long real estate boom.’

‘Norway’s Financial Supervisory Authority this week rejected pleas from Solberg’s government to ease guidelines in place since 2011 that limit loans to 85 percent of a home’s value. The FSA said banks are already flexible in their compliance with mortgage guidelines and signaled new measures may be needed to curb household debt growth.’

‘Nordea Bank AB (NDA), the largest Nordic lender, says Norway’s housing market may sink as much as 20 percent over the next two years, forcing the central bank to cut rates twice in 2014.’

‘Kenyan property prices remained substantially flat in 2013, according to a housing survey. HassConsult Marketing Manager Sakina Hassanali told a media briefing in Nairobi that home owners are longer enjoying the year on year capital appreciation they recorded in previous years. “As a result investment in property is thus beginning to lose its sparkle,” Hassanali said.’

‘Kenya’s residential property market has enjoyed more than ten years of extraordinary growth. According to Hassanali, houses that are accessible to main roads have continued to sell rapidly even as they achieve rising prices. “While ill conceived properties have sometimes remained unsold for a long time,” she said.’

‘Hass Index Consultant Jenny Luesby said that the marked slowdown in property prices is a worrying concern. “However, Kenya is unlikely to experience a property bubble,” Luesby said. “The market is largely cash driven and so the argument of a bubble does not apply in the Kenyan market,” she said.’

‘The consultant said that Kenya’s balance of payments and public sector deficits have put the property industry under increasing pressure. “The new and extended tax burdens have stretched both builders and buyers alike,” she said.’

‘The International Monetary Fund has raised its 2014 economic growth forecast for the United Arab Emirates to 4.5 per cent but warned of a potential property bubble if authorities were not careful. “The real estate sector in particular has seen a steep recovery, with prices in the Dubai residential real estate market having increased rapidly in selected areas,” said Harald Finger, the IMF’s mission chief, following a staff visit.’

‘Growth should be aided by a number of megaprojects, although their total cost, pace of execution and financing remain uncertain, and Dubai’s hosting of the Expo 2020 exhibition, the IMF also said. “If not implemented prudently, these projects could exacerbate the risk of a real estate bubble,” Finger said, echoing the Fund’s warnings from last November and June.’

“Moreover, these projects may create additional financial risks for Dubai’s government-related entities (GREs) and the banking system in light of the still considerable debt overhang from the 2009 crisis.’ he said.”

‘House prices in Dubai have climbed more than 20 percent over the past year – higher than any major global market – as billions of dollars of government real estate projects triggered a buying spree and stock market bull run.

The IMF also welcomed last year’s doubling in Dubai’s real estate fees to four per cent designed to stem the speculation.

“The (Dubai) Real Estate Regulatory Agency (RERA) is thinking about differentiated fees now to discourage further the quick re-selling or flipping particularly of off-plan property,” Finger told Reuters.

The IMF also said the central bank’s newly implemented regulations on loan concentration and real estate exposure for banks will help protect the soundness of the banking system. “Looking ahead, the Central Bank could consider further tightening these rules if price increases in the real estate market remain very large,” Finger said in the statement.’

Hmmm.

‘considerable debt overhang from the 2009 crisis’

We are using the chinese.
No other country is so stupid as to sell a product that costs $30 to build and ship, for $3.99

They buy our recycled garbage(real garbage)
They buy our excess housing for far too much

They do all of this simply so their backward ass can go to the prom.
They are a pig in self applied lipstick.

When they crash, soon, they will close the gates for 300 years and experience a PolPot period, then proceed without us.

‘The average apartment price in Romania plunged to 898 euros per square meter at the end of 2013 from more than 2,000 euros in 2008, an index from property listings website and consultancy imobiliare.ro shows. Still, the government’s First Home program may be keeping prices artificially high, according to Andrei Radulescu, an analyst at Romanian brokerage SSIF Broker SA told Bloomberg.’

“The program prevented a possible natural adjustment of the market that would have brought home prices closer to their fair value,” he said. “Without it, I think the banking sector would also have adjusted more quickly.”

‘London’€™s housing market is beginning to show “bubble-like conditions” as overseas investors bid up prices and buyers take on more debt to purchase properties, according to a report today by the EY Item Club, the London-based group sponsored by EY, formerly Ernst & Young.’

‘Surging London home prices, buoyed by demand from overseas investors and government initiatives to aid buyers, have prompted economists, analysts and politicians to warn of unsustainable gains. Asia has been a particularly strong source of demand for the best London properties, EY Item Club said, citing brokers.’

‘People living outside the U.K. bought half of all new homes sold in London’s best neighborhoods in the two years through June, broker Knight Frank LLP said in October. “Bursting a bubble at the luxury end of the market, which continues to attract interest from international cash buyers with the seemingly irresistible global draw of London’s X-factor, may prove tricky,” Dean Hodcroft, U.K. and Ireland head of real estate, hospitality and construction at EY, said in the statement.’

X-factor?

X-factor? No doubt, what the heck is that?

Is it because London is the central hub of the B.I.S. which is the controlling fist of the world’s central banks?

That’s my best guess.